MMT is barely sustainable for the U.S. and crashes for other countries, kills spillover and solvency

Another serious problem with MMT is its embeddedness in a rich-country perspective, and in particular American exceptionalism — in this case the “exorbitant privilege,” as a French finance minister once put it, that comes with issuing the world’s dominant currency. Countries around the world keep their reserves (basically rainy-day funds on a very large scale held by governments at their central banks) in dollars, which make them effectively a captive market for US Treasury bonds (which is how the dollars are kept). Also, major commodities like oil are priced in dollars, forcing countries to accumulate the currency to pay for essential imports. That means the United States, exceptionally, can run giant deficits and borrow on a vast scale with little constraint (so far). Nor do we have to worry about the value of the dollar (for now, though you have to wonder how long the exorbitant privilege will last in a world where US dominance is eroding).

But less privileged countries have to worry about foreign investors dumping their bonds and driving down the value of their currency, which would jack up interest rates and inflation. Salvador Allende’s government greatly increased spending and raised the incomes of the poorest in Chile in the early 1970s; that worked nicely for a while, but then inflation took off. Allende wasn’t operating from the MMT playbook, merely resorting to policies pursued by many progressive governments facing political opposition and resource constraints. But such experiments rarely end well, and similar problems would face a poor country trying to stimulate its way to prosperity today, as we see in Venezuela now.

Compared to the United States, such countries enjoy less “monetary sovereignty” — a core MMT concept. A monetarily sovereign state is one that can spend its currency at will, including from pure keystrokes. America enjoys a lot of monetary sovereignty; so do Canada, Japan, and Britain, though to a lesser degree. Those countries need, for example, to import things priced in dollars, like oil, and the value of their currency has a direct effect on living standards that Americans are insulated from because we can print the currency in which that oil is priced. Brazil, in turn, has even less freedom; it needs harder currencies like dollars and euros to import commodities and advanced manufactured goods; and poorer countries like Bolivia or Ghana have even less. To buy essential imports, these countries often have to borrow in those hard currencies. To pay off the loans, they need to earn foreign currency through exports.

MMT has little helpful to say about that situation — in fact, its advocates sometimes seem to lecture them that foreign borrowing is risky, which it is, but sometimes it’s the only way you can buy power plants and locomotives. MMTers like William Mitchell and Wray write as if borrowing abroad is just a bad choice, and not something forced on subordinate economies. When I asked Mosler what MMT had to offer Turkey, a country whose currency has been losing value for the last four years and had something of a financial crisis in the summer of 2018, he responded with a bit of avian whimsy: “Without our recipe for Turkey they’re a dead duck.” (In fact, Turkey had been pursuing MMT-friendly expansionary fiscal and monetary policies, including state guarantees of private corporate debt, and inflation was around 11–12 percent and rising.) Not satisfied with that answer, I said that while I understood the risks of borrowing in a foreign currency, which Turkey had done a lot of, there’s not much sophisticated capital equipment available for sale in Turkish lira. Mosler answered, wrongly, that you could actually buy “a lot” of such goods in lira, and that “Any nation can sustain domestic full employment without imports of capital goods” — totally missing the point that a country looking to ascend in the global economic hierarchy needs investment goods that are only made in countries like Germany or Japan.

Member countries in the euro are a case unto themselves. Greece and the other debtors on the continent’s periphery have little sovereignty — they have big foreign debts in a currency they can’t print. Greece could have left the euro, as many on the Left urged, but that would have been massively disruptive, and even leaving that aside, it wouldn’t have addressed the country’s longstanding structural weaknesses, like an underfunded state and an underdeveloped industrial infrastructure. Symptomatic of that relative weakness: in the twenty years prior to the introduction of the euro, the drachma lost 88 percent of its value. Inflation over that period averaged over 14 percent a year. In 1980, Greek per capita GDP was 73 percent of the US’s; by 2002, that had fallen to 60 percent. In other words, Greece’s economic problems long predate the euro. And even though they don’t literally print the currency, core eurozone countries like Germany and the Netherlands hardly suffer from their formal lack of monetary sovereignty. What matters far more is your place in the global economic food chain — and that can be annoyingly sticky.

MMT’s unacknowledged dependence on the exorbitant privilege of the United States —Mitchell is about the only high-profile MMTer from abroad — is almost completely unaddressed by its proponents.